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Southside Bancshares, Inc. Announces Financial Results for the Three and Six Months Ended June 30, 2017

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TYLER, Texas, July 28, 2017 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ("Southside" or the "Company") (NASDAQ:SBSI) today reported its financial results for the three and six months ended June 30, 2017.

Southside reported net income of $14.5 million for the three months ended June 30, 2017, an increase of $3.1 million, or 27.1%, compared to $11.4 million for the same period in 2016.  Southside reported net income of $29.5 million for the six months ended June 30, 2017, an increase of $4.6 million, or 18.3%, compared to $24.9 million for the same period in 2016.

Diluted earnings per common share were $0.49 for the three months ended June 30, 2017, an increase of $0.07, or 16.7%, compared to $0.42 for the three months ended June 30, 2016.  For the six months ended June 30, 2017, diluted earnings per common share increased $0.08, or 8.7%, to $1.00 when compared to $0.92 for the same period in 2016.

The return on average shareholders' equity for the six months ended June 30, 2017 was 11.13%, compared to 10.93% for the same period in 2016.  The return on average assets was 1.06% for the six months ended June 30, 2017, compared to 0.99% for the same period in 2016.

"Strong financial results and the announcement of a merger agreement with Diboll State Bancshares, Inc. provide the highlights for the second quarter," stated Lee R. Gibson, President and Chief Executive Officer of Southside. "Our financial results for the second quarter included solid loan growth of $71.3 million, a 2.8% increase on a linked quarter basis, net income of $14.5 million, which included $473,000 of merger related expense and $75,000 of expense associated with two scheduled branch closures, a decrease in the efficiency ratio to 50.26% and a decrease in our ratio of nonperforming assets to total assets to 0.16%."

"Our loan growth primarily occurred late in the quarter with $60.1 million booked in June and of the $60.1 million, $14.6 million was booked during the last two days of June.  End of quarter loan growth, combined with our healthy pipeline, should provide an excellent start for loan revenue in the third quarter."

"On June 12, 2017, we announced the signing of a merger agreement with Diboll State Bancshares, Inc. ("Diboll").  We have filed all of our applications with relevant regulatory authorities and are currently preparing the preliminary proxy statement/prospectus to be included in our registration statement on Form S-4 which will be filed with the Securities and Exchange Commission.  We anticipate closing this transaction sometime during the fourth quarter of 2017, subject to regulatory approval, Diboll shareholder approval, and customary closing conditions."

Loans and Deposits

For the six months ended June 30, 2017, total loans increased by $53.7 million, or 2.1%, compared to December 31, 2016.  The net increase in our loans was comprised primarily of increases of $87.7 million of commercial real estate loans, $6.7 million of construction loans, and $6.4 million of municipal loans, which were partially offset by decreases of $21.8 million of 1-4 family residential loans, $20.3 million of loans to individuals, and $5.0 million of commercial loans.  Loans with oil and gas industry exposure totaled 1.14% of the loan portfolio at June 30, 2017, compared to 1.09% at December 31, 2016.

Nonperforming assets decreased during the six months ended June 30, 2017 by $5.9 million, or 39.3%, to $9.2 million, or 0.16% of total assets, compared to 0.27% of total assets at December 31, 2016, due to the payoff of several nonaccrual commercial loans during the six months ended June 30, 2017.

During the six months ended June 30, 2017, the allowance for loan losses increased by $1.3 million, or 7.4%, to $19.2 million, or 0.74% of total loans, compared to 0.70% of total loans at December 31, 2016, primarily due to loan growth. 

During the six months ended June 30, 2017, deposits, net of brokered deposits, decreased $11.0 million, or 0.3%, compared to December 31, 2016.  During this six-month period, our public fund deposits decreased $38.2 million, or 3.8%. 

Net Interest Income for the Three Months Ended June 30, 2017

Net interest income increased $1.0 million, or 3.0%, to $35.4 million for the three months ended June 30, 2017, compared to $34.4 million for the same period in 2016.  The increase in net interest income was the result of  a $4.9 million increase in interest income on loans and the securities portfolio, partially offset by the increase in interest expense of $3.9 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016.  For the three months ended June 30, 2017, our net interest spread decreased to 2.89%, compared to 3.24% for the same period in 2016.  Our net interest margin decreased to 3.07% for the three months ended June 30, 2017, compared to 3.35% for the same period in 2016.  Both the decrease in net interest margin and spread was due to higher average rates paid on interest bearing liabilities along with a decrease in the average yield on earning assets.  The increase in average rates paid on interest bearing liabilities was a direct result of the subordinated debt issuance and the decrease in purchase accretion on the certificate of deposit premium during the third quarter of 2016 and overall higher interest rates. The decrease in the average yield on earning assets during the three months ended June 30, 2017 was primarily the result of a decrease in purchase accounting accretion on loans and a decrease in the average yield on tax-exempt investment securities.   The net interest spread and margin on a linked quarter basis decreased from 2.93% and 3.08%, respectively, for the three months ended March 31, 2017, to 2.89% and 3.07%, respectively, for the three months ended June 30, 2017.

Net Interest Income for the Six Months Ended June 30, 2017

Net interest income decreased $290,000, or 0.4%, to $70.7 million for the six months ended June 30, 2017, compared to $71.0 million for the same period in 2016.  The decrease in net interest income was the result of the $7.1 million increase in interest expense on our deposits and other interest bearing liabilities exceeding the $6.8 million increase in interest income on loans and the securities portfolio, compared to the same period in 2016.  For the six months ended June 30, 2017, our net interest spread decreased to 2.91%, compared to 3.32% for the same period in 2016.  Our net interest margin decreased to 3.07% for the six months ended June 30, 2017, compared to 3.43% for the same period in 2016.  Both the decrease in net interest margin and spread was due to higher average rates paid on interest bearing liabilities along with a decrease in the average yield on earning assets.  The increase in average rates paid on interest bearing liabilities was a direct result of the subordinated debt issuance and the decrease in purchase accretion on the certificate of deposit premium during the third quarter of 2016 and overall higher interest rates.  The decrease in the average yield on earning assets was the result of a 23 basis point decrease in the average yield on investment securities combined with a decrease in purchase accounting accretion on loans and the effect on the average yield on loans in 2016, of the $1.3 million recovery of interest income on the payoff of a long-term nonaccrual loan during the first quarter of 2016.

Net Income for the Three Months Ended June 30, 2017

Net income increased $3.1 million, or 27.1%, for the three months ended June 30, 2017, to $14.5 million compared to the same period in 2016.  The increase was primarily the result of a $4.9 million increase in interest income and a $2.4 million decrease in provision for loan losses, partially offset by a $3.9 million increase in interest expense and a $0.6 million increase in income tax expense.

Noninterest income decreased $0.1 million, or 0.8%, for the three months ended June 30, 2017, compared to the same period in 2016, due primarily to a decrease in net gain on sale of securities available for sale and a decrease in gain on sale of loans which was partially offset by increases in other noninterest income, deposit services income, and brokerage services income.

Noninterest expense decreased $0.3 million, or 1.1%, for the three months ended June 30, 2017, compared to the same period in 2016, due primarily to decreases in professional fees, FDIC insurance and advertising, travel and entertainment expense, partially offset by increases in other noninterest expense. The decrease in professional fees is due to decreases in consulting fees associated with the cost containment and process improvement efforts initiated in January 2016.  FDIC insurance decreased due to reduced FDIC assessment rates.  Advertising, travel and entertainment expenses decreased primarily due to a decrease in advertising expense. Other noninterest expense increased primarily due to acquisition expense of approximately $473,000 related to the pending merger with Diboll.

Net Income for the Six Months Ended June 30, 2017

Net income increased $4.6 million, or 18.3%, for the six months ended June 30, 2017, to $29.5 million compared to the same period in 2016.  The increase was primarily the result of a $6.8 million increase in interest income, a $3.8 million decrease in noninterest expense, and a $3.6 million decrease in provision for loan losses, partially offset by a $7.1 million increase in interest expense, a $2.0 million decrease in noninterest income, and a $0.6 million increase in income tax expense.

Noninterest income decreased $2.0 million, or 9.5%, for the six months ended June 30, 2017 compared to the same period in 2016, due to a decrease in net gain on sale of securities available for sale and a decrease in gain on sale of loans which was partially offset by increases in other noninterest income, deposit services income, and brokerage services income.

Noninterest expense decreased $3.8 million, or 6.9%, for the six months ended June 30, 2017, compared to the same period in 2016, due primarily to decreases in salary and employee benefits, professional fees, occupancy expense, FDIC insurance, advertising, travel and entertainment expense and other noninterest expense, partially offset by an increase in ATM and debit card expense. The decrease in salaries and employee benefits was due to a one-time expense of $1.7 million related to the acceptance of early retirement packages of 16 employees during the six months ended June 30, 2016.  Professional fees decreased due to decreases in consulting fees associated with cost containment and process improvement efforts initiated in January 2016.  Occupancy expense decreased due to lower rent expense.  FDIC insurance decreased due to reduced FDIC assessment rates. Advertising, travel and entertainment expenses decreased primarily due to decreases in advertising and travel expenditures. Other noninterest expense decreased primarily due to a reduction in the provision expense for losses on unfunded loan commitments, losses on other real estate owned, a decrease in core deposit intangible amortization expense and equipment maintenance expense, partially offset by acquisition expense of approximately $473,000 related to the pending merger with Diboll.  ATM and debit card expense increased due to increased activity.

Conference Call

Southside's management team will host a conference call to discuss its second quarter 2017 financial results on Friday, July 28, 2017 at 9:00 am CDT.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 52302927 or by identifying "Southside Bancshares, Inc., Second Quarter 2017 Earnings Call."  To listen to the call via web-cast, register at www.southside.com/about/investor-relations.

For those unable to listen to the conference call live, a recording of the conference call will be available from approximately 3:00 pm CDT July 28, 2017 through August 9, 2017 by accessing the company website, www.southside.com/about/investor-relations.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles ("GAAP") in the United States and prevailing practices in the banking industry.  However, certain non-GAAP measures are used by management to supplement the evaluation of our performance.  These include the following fully-taxable equivalent measures: (i) tax-equivalent net interest income, (ii) tax-equivalent net interest margin, (iii) tax-equivalent net interest spread, and (iv) tax-equivalent efficiency ratio, which include the effects of taxable-equivalent adjustments using a federal income tax rate of 35% to increase tax-exempt interest income to a tax-equivalent basis.  Whenever we present a non-GAAP financial measure in an SEC filing, we are also required to present the most directly comparable financial measure calculated and presented in accordance with GAAP and reconcile the differences between the non-GAAP financial measure and such comparable GAAP measure.  Tax-equivalent adjustments are reported in notes 2 and 3 to the  "Average Balances with Average Yields and Rates" tables under "Results of Operations" below.

Tax-equivalent net interest income, net interest margin and net interest spread.  Net interest income on a tax-equivalent basis is a non-GAAP measure that adjusts for the tax-favored status of net interest income from loans and investments.  We believe this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest income.  Net interest margin on a tax-equivalent basis is net interest income on a tax-equivalent basis divided by average interest-earning assets on a tax-equivalent basis.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin.  Net interest spread on a tax-equivalent basis is the difference in the average yield on average interest-earning assets on a tax equivalent basis and the average rate paid on average interest-bearing liabilities.   The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

Efficiency ratio.  The efficiency ratio, calculated on a tax-equivalent basis, is a non-GAAP measure that provides a measure of productivity in the banking industry.  This ratio is calculated to measure the cost of generating one dollar of revenue.  The ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue.  We calculate this ratio by dividing noninterest expense, excluding amortization of intangibles and certain non-recurring expense by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains (losses) on sales of investment securities and certain non-recurring impairments. The most directly comparable financial measure calculated in accordance with GAAP is our efficiency ratio.

These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements, and other bank holding companies may define or calculate these non-GAAP measures or similar measures differently.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $5.58 billion in assets as of June 30, 2017, that owns 100% of Southside Bank.  Southside Bank currently has 60 banking centers in Texas and operates a network of 70 ATMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at www.southside.com/about/investor-relations.  Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data.  To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website.  Questions or comments may be directed to Suni Davis at (903) 531-7235, or suni.davis@southside.com.

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this document and in other written material, press releases and oral statements issued by or on behalf of the Company may be considered to be "forward-looking statements" within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date.  These statements may include words such as "expect," "estimate," "project," "anticipate," "appear," "believe," "could," "should," "may," "likely," "intend," "probability," "risk," "target," "objective," "plans," "potential," and similar expressions.  Forward-looking statements are statements with respect to the Company's beliefs, plans, expectations, objectives, goals, anticipations, assumptions and estimates about the Company's future performance and are subject to significant known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements.  For example, discussions about trends in asset quality, capital, liquidity, the pace of loan and revenue growth, the Company's ability to sell nonperforming assets, expense reductions, planned operational efficiencies, earnings, pending acquisitions, and certain market risk disclosures, including the impact of interest rates and other economic factors, are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future.

Additional information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, under "Forward-Looking Information" and Item 1A.  "Risk Factors," and in the Company's other filings with the Securities and Exchange Commission.  The Company disclaims any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.


      SOUTHSIDE BANCSHARES, INC.
      CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
      (In thousands, except per share data)
                       
      As of
      2017   2016
      June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
ASSETS                      
Cash and due from banks     $ 56,033     $ 54,345     $ 59,363     $ 54,255     $ 45,663  
Interest earning deposits     175,039     185,289     102,251     144,833     18,450  
Federal funds sold     4,760     7,360     8,040          
Securities available for sale, at estimated fair value     1,397,811     1,444,043     1,479,600     1,622,128     1,416,335  
Securities held to maturity, at carrying value     925,538     929,793     937,487     775,682     784,925  
Federal Home Loan Bank stock, at cost     61,561     61,305     61,084     51,901     47,702  
Loans held for sale     3,036     5,303     7,641     5,301     5,883  
Loans     2,610,198     2,538,918     2,556,537     2,483,641     2,384,321  
Less: Allowance for loan losses     (19,241 )   (18,485 )   (17,911 )   (15,993 )   (14,908 )
Net loans     2,590,957     2,520,433     2,538,626     2,467,648     2,369,413  
Premises & equipment, net     105,938     105,327     106,003     106,777     107,242  
Goodwill     91,520     91,520     91,520     91,520     91,520  
Other intangible assets, net     3,767     4,177     4,608     5,060     5,534  
Bank owned life insurance     99,011     98,377     97,775     97,002     96,375  
Other assets     63,511     148,977     69,769     42,796     45,886  
Total assets     $ 5,578,482     $ 5,656,249     $ 5,563,767     $ 5,464,903     $ 5,034,928  
                       
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Noninterest bearing deposits     $ 757,353     $ 753,224     $ 704,013     $ 747,270     $ 679,831  
Interest bearing deposits     2,866,720     2,952,072     2,829,063     2,834,117     2,890,418  
Total deposits     3,624,073     3,705,296     3,533,076     3,581,387     3,570,249  
Short-term obligations     1,024,257     960,730     873,615     720,634     385,717  
Long-term obligations     320,658     411,310     601,464     621,640     559,071  
Other liabilities     62,429     47,447     37,338     68,682     47,591  
Total liabilities     5,031,417     5,124,783     5,045,493     4,992,343     4,562,628  
Shareholders' equity     547,065     531,466     518,274     472,560     472,300  
Total liabilities and shareholders' equity     $ 5,578,482     $ 5,656,249     $ 5,563,767     $ 5,464,903     $ 5,034,928  



    At or For the Three Months Ended
                    2017   2016
    June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
Income Statement:                    
Total interest income   $ 46,009     $ 44,888     $ 43,680     $ 41,132     $ 41,089  
Total interest expense   10,585     9,608     9,039     7,202     6,711  
Net interest income   35,424     35,280     34,641     33,930     34,378  
Provision for loan losses   1,346     1,098     2,065     1,631     3,768  
Net interest income after provision for loan losses   34,078     34,182     32,576     32,299     30,610  
Noninterest income                    
Deposit services   5,255     5,114     5,183     5,335     5,099  
Net (loss) gain on sale of securities available for sale   (75 )   322     (2,676 )   2,343     728  
Gain on sale of loans   505     701     461     818     873  
Trust income   899     890     900     867     869  
Bank owned life insurance income   635     634     649     656     647  
Brokerage services   682     547     466     551     535  
Other   1,392     1,465     1,730     1,162     619  
Total noninterest income   9,293     9,673     6,713     11,732     9,370  
Noninterest expense                    
Salaries and employee benefits   14,915     15,919     16,194     15,203     14,849  
Occupancy expense   2,897     2,863     2,825     4,569     2,993  
Advertising, travel & entertainment   548     583     648     588     722  
ATM and debit card expense   889     927     820     868     736  
Professional fees   1,050     939     982     1,148     1,478  
Software and data processing expense   688     725     687     736     739  
Telephone and communications   476     526     572     407     468  
FDIC insurance   445     441     215     643     645  
FHLB prepayment fees                   148  
Other   3,629     2,935     2,934     4,263     3,035  
Total noninterest expense   25,537     25,858     25,877     28,425     25,813  
Income before income tax expense   17,834     17,997     13,412     15,606     14,167  
Income tax expense   3,353     3,008     1,839     2,741     2,772  
Net income   $ 14,481     $ 14,989     $ 11,573     $ 12,865     $ 11,395  
                     
Common share data:        
Weighted-average basic shares outstanding   29,318     29,288     27,542     26,923     26,890  
Weighted-average diluted shares outstanding   29,519     29,504     27,731     27,080     27,013  
Shares outstanding end of period   29,344     29,306     29,261     26,939     26,912  
Net income per common share                    
Basic   $ 0.49     $ 0.51     $ 0.42     $ 0.48     $ 0.42  
Diluted   0.49     0.51     0.42     0.48     0.42  
Book value per common share   18.64     18.14     17.71     17.54     17.55  
Cash dividend paid per common share   0.28     0.25     0.30     0.24     0.24  
                     
Selected Performance Ratios:                    
Return on average assets   1.04 %   1.08 %   0.83 %   0.98 %   0.90 %
Return on average shareholders' equity   10.70     11.57     9.56     10.78     9.91  
Average yield on earning assets (1)   3.88     3.82     3.73     3.78     3.93  
Average rate on interest bearing liabilities   0.99     0.89     0.83     0.72     0.69  
Net interest spread (1)   2.89     2.93     2.90     3.06     3.24  
Net interest margin (1)   3.07     3.08     3.03     3.19     3.35  
Average earning assets to average interest bearing liabilities   121.57     120.04     119.88     120.40     120.21  
Noninterest expense to average total assets   1.83     1.87     1.85     2.17     2.05  
Efficiency ratio (1)   50.26     51.60     52.00     53.88     52.85  
(1)  See "Non-GAAP Financial Measures."                                                


            At or For the
Six Months Ended
            June 30,
                        2017   2016
Income Statement:                
Total interest income           $ 90,897     $ 84,101  
Total interest expense           20,193     13,107  
Net interest income           70,704     70,994  
Provision for loan losses           2,444     6,084  
Net interest income after provision for loan losses                                                         68,260     64,910  
Noninterest income                
Deposit services           10,369     10,184  
Net gain on sale of securities available for sale                                                   247     3,169  
Gain on sale of loans           1,206     1,516  
Trust income           1,789     1,724  
Bank owned life insurance income           1,269     1,321  
Brokerage services           1,229     1,110  
Other           2,857     1,942  
Total noninterest income           18,966     20,966  
Noninterest expense                
Salaries and employee benefits           30,834     32,581  
Occupancy expense           5,760     6,328  
Advertising, travel & entertainment           1,131     1,407  
ATM and debit card expense           1,816     1,448  
Professional fees           1,989     2,816  
Software and data processing expense           1,413     1,488  
Telephone and communications           1,002     952  
FDIC insurance           886     1,283  
FHLB prepayment fees               148  
Other           6,564     6,769  
Total noninterest expense           51,395     55,220  
Income before income tax expense           35,831     30,656  
Income tax expense           6,361     5,745  
Net income           $ 29,470     $ 24,911  
                         
Common share data:                        
Weighted-average basic shares outstanding             29,303       27,002  
Weighted-average diluted shares outstanding             29,511       27,099  
Net income per common share                        
Basic           $ 1.01     $ 0.92  
Diluted             1.00       0.92  
Book value per common share             18.64       17.55  
Cash dividend paid per common share             0.53       0.47  
                         
Selected Performance Ratios:                        
Return on average assets             1.06 %     0.99 %
Return on average shareholders' equity             11.13       10.93  
Average yield on earning assets (1)             3.85       4.00  
Average yield on interest bearing liabilities             0.94       0.68  
Net interest spread (1)             2.91       3.32  
Net interest margin (1)             3.07       3.43  
Average earning assets to average interest bearing liabilities             120.80       119.91  
Noninterest expense to average total assets             1.85       2.19  
Efficiency ratio (1)             50.93       55.22  
(1)  See "Non-GAAP Financial Measures."                                


  Southside Bancshares, Inc.
  Selected Financial Data (unaudited)
  (dollars in thousands)
                   
  Three Months Ended
  2017   2016
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
Nonperforming assets: $ 9,165     $ 14,079     $ 15,105     $ 16,008     $ 24,510  
Nonaccrual loans (1) 3,034     7,261     8,280     8,536     11,767  
Accruing loans past due more than 90 days (1)     1     6     1     6  
Restructured loans (2) 5,884     6,424     6,431     7,193     12,477  
Other real estate owned 233     367     339     237     237  
Repossessed assets 14     26     49     41     23  
                   
Asset Quality Ratios:                  
Nonaccruing loans to total loans 0.12 %   0.29 %   0.32 %   0.34 %   0.49 %
Allowance for loan losses to nonaccruing loans 634.18     254.58     216.32     187.36     126.69  
Allowance for loan losses to nonperforming assets 209.94     131.29     118.58     99.91     60.82  
Allowance for loan losses to total loans 0.74     0.73     0.70     0.64     0.63  
Nonperforming assets to total assets 0.16     0.25     0.27     0.29     0.49  
Net charge-offs to average loans 0.09     0.08     0.02     0.09     1.77  
                   
Capital Ratios:                  
Shareholders' equity to total assets 9.81     9.40     9.32     8.65     9.38  
Average shareholders' equity to average total assets 9.72     9.36     8.66     9.10     9.11  
 
(1)  Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2)  Includes $3.0 million, $3.0 million, $3.1 million, $3.2 million, and $8.3 million in PCI loans restructured as of June 30, 2017, March 31, 2017,
      December 31, 2016, September 30, 2016, and June 30, 2016, respectively.

Loan Portfolio Composition

The following table sets forth loan totals by category for the periods presented:

          Three Months Ended
          2017   2016
          June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
Real Estate Loans:                          
Construction         $ 386,853     $ 362,367     $ 380,175     $ 466,323     $ 425,595  
1-4 Family Residential                           615,405     622,881     637,239     644,746     633,400  
Commercial         1,033,629     974,307     945,978     759,795     694,272  
Commercial Loans         172,311     176,908     177,265     191,154     197,896  
Municipal Loans         305,023     297,417     298,583     293,949     292,909  
Loans to Individuals         96,977     105,038     117,297     127,674     140,249  
Total Loans         $ 2,610,198     $ 2,538,918     $ 2,556,537     $ 2,483,641     $ 2,384,321  

RESULTS OF OPERATIONS

The "Average Balances with Average Yields and Rates" tables that follow show average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities (dollars in thousands).

    Average Balances with Average Yields and Rates
    (unaudited)
    Three Months Ended
    June 30, 2017   March 31, 2017
    Avg Balance   Interest   Avg
Yield/Rate
  Avg Balance   Interest   Avg
Yield/Rate
ASSETS                        
Loans (1) (2)   $ 2,557,093     $ 29,080     4.56 %   $ 2,549,230     $ 28,241     4.49 %
Loans held for sale   5,914     60     4.07 %   7,023     48     2.77 %
Securities:                        
Investment securities (taxable) (4)   58,168     267     1.84 %   86,511     377     1.77 %
Investment securities (tax-exempt) (3) (4)   749,259     9,386     5.02 %   779,772     9,929     5.16 %
Mortgage-backed and related securities (4)   1,594,269     10,818     2.72 %   1,570,510     10,045     2.59 %
Total securities   2,401,696     20,471     3.42 %   2,436,793     20,351     3.39 %
FHLB stock, at cost, and other investments                       66,744     299     1.80 %   66,547     298     1.82 %
Interest earning deposits   156,124     364     0.94 %   162,235     346     0.86 %
Federal funds sold   5,326     14     1.05 %   7,217     14     0.79 %
Total earning assets   5,192,897     50,288     3.88 %   5,229,045     49,298     3.82 %
Cash and due from banks   50,961             53,528          
Accrued interest and other assets   358,041             350,729          
Less: Allowance for loan losses   (18,495 )           (18,130 )        
Total assets   $ 5,583,404             $ 5,615,172          
LIABILITIES AND SHAREHOLDERS' EQUITY                        
Savings deposits   $ 262,009     121     0.19 %   $ 252,744     92     0.15 %
Time deposits   1,014,101     2,723     1.08 %   927,610     2,227     0.97 %
Interest bearing demand deposits   1,616,036     2,294     0.57 %   1,707,996     1,962     0.47 %
Total interest bearing deposits   2,892,146     5,138     0.71 %   2,888,350     4,281     0.60 %
Short-term interest bearing liabilities   1,010,484     2,480     0.98 %   1,007,546     2,065     0.83 %
Long-term interest bearing liabilities – FHLB Dallas   210,416     1,075     2.05 %   301,775     1,402     1.88 %
Subordinated notes (5)   98,151     1,398     5.71 %   98,117     1,393     5.76 %
Long-term debt (6)   60,238     494     3.29 %   60,237     467     3.14 %
Total interest bearing liabilities   4,271,435     10,585     0.99 %   4,356,025     9,608     0.89 %
Noninterest bearing deposits   729,564             693,729          
Accrued expenses and other liabilities   39,819             39,960          
Total liabilities   5,040,818             5,089,714          
Shareholders' equity   542,586             525,458          
Total liabilities and shareholders' equity   $ 5,583,404             $ 5,615,172          
Net interest income (7)       $ 39,703             $ 39,690      
Net interest margin on average earning assets (7)           3.07 %           3.08 %
Net interest spread (7)           2.89 %           2.93 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. Interest income includes taxable-equivalent adjustments of $1,050 and $1,035 for the three months ended June 30, 2017 and March 31, 2017, respectively.  See "Non-GAAP Financial Measures."
  3. Interest income includes taxable-equivalent adjustments of $3,229 and $3,375 for the three months ended June 30, 2017 and March 31, 2017, respectively.  See "Non-GAAP Financial Measures."
  4. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
  5. The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.8 million and $1.9 million for the three months ended June 30, 2017 and March 31, 2017, respectively.
  6. Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended June 30, 2017 and March 31, 2017 reflect unamortized debt issuance costs of $73,000 and $74,000, respectively.
  7.  See "Non-GAAP Financial Measures."

Note:  As of June 30, 2017 and March 31, 2017, loans totaling $3,034 and $7,261, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

    Three Months Ended
    December 31, 2016   September 30, 2016
    Avg Balance   Interest   Avg
Yield/Rate
  Avg Balance   Interest   Avg
Yield/Rate
ASSETS                        
Loans (1) (2)                 $ 2,512,820     $ 27,835     4.41 %   $ 2,436,349     $ 26,750     4.37 %
Loans held for sale   4,845     36     2.96 %   6,718     54     3.20 %
Securities:                        
Investment securities (taxable) (4)   115,057     485     1.68 %   61,238     251     1.63 %
Investment securities (tax-exempt) (3) (4)   812,771     10,352     5.07 %   690,635     8,911     5.13 %
Mortgage-backed and related securities (4)   1,520,045     9,294     2.43 %   1,492,271     9,399     2.51 %
Total securities   2,447,873     20,131     3.27 %   2,244,144     18,561     3.29 %
FHLB stock, at cost, and other investments   62,087     210     1.35 %   54,085     186     1.37 %
Interest earning deposits   134,786     165     0.49 %   57,598     89     0.61 %
Federal funds sold   2,972     5     0.67 %            
Total earning assets   5,165,383     48,382     3.73 %   4,798,894     45,640     3.78 %
Cash and due from banks   52,415             49,418          
Accrued interest and other assets   359,217             385,917          
Less: Allowance for loan losses   (16,467 )           (14,989 )        
Total assets   $ 5,560,548             $ 5,219,240          
LIABILITIES AND SHAREHOLDERS' EQUITY                        
Savings deposits   $ 250,706     76     0.12 %   $ 248,364     71     0.11 %
Time deposits   926,021     2,261     0.97 %   949,019     2,073     0.87 %
Interest bearing demand deposits   1,646,535     1,543     0.37 %   1,634,898     1,460     0.36 %
Total interest bearing deposits   2,823,262     3,880     0.55 %   2,832,281     3,604     0.51 %
Short-term interest bearing liabilities   869,398     1,428     0.65 %   608,130     1,122     0.73 %
Long-term interest bearing liabilities – FHLB Dallas   457,754     1,837     1.60 %   472,470     1,857     1.56 %
Subordinated notes (5)   98,011     1,439     5.84 %   12,823     189     5.86 %
Long-term debt (6)   60,235     455     3.01 %   60,234     430     2.84 %
Total interest bearing liabilities   4,308,660     9,039     0.83 %   3,985,938     7,202     0.72 %
Noninterest bearing deposits   717,599             702,539          
Accrued expenses and other liabilities   52,714             55,783          
Total liabilities   5,078,973             4,744,260          
Shareholders' equity   481,575             474,980          
Total liabilities and shareholders' equity   $ 5,560,548             $ 5,219,240          
Net interest income (7)       $ 39,343             $ 38,438      
Net interest margin on average earning assets (7)           3.03 %           3.19 %
Net interest spread (7)           2.90 %           3.06 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. Interest income includes taxable-equivalent adjustments of $1,045 and $1,064 for the three months ended December 31, 2016 and September 30, 2016, respectively.  See "Non-GAAP Financial Measures."
  3. Interest income includes taxable-equivalent adjustments of $3,657 and $3,444 for the three months ended December 31, 2016 and September 30, 2016, respectively.  See "Non-GAAP Financial Measures."
  4. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
  5. The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $2.0 million and $220,000 for the three months ended December 31, 2016 and September 30, 2016, respectively.
  6. Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended December 31, 2016 and September 30, 2016 reflect unamortized debt issuance costs of $76,000 and $77,000, respectively.
  7.  See "Non-GAAP Financial Measures."

Note:  As of December 31, 2016 and September 30, 2016, loans totaling $8,280 and $8,536, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

                              Three Months Ended
                June 30, 2016
                                    Avg Balance   Interest   Avg
Yield/Rate
ASSETS                        
Loans (1) (2)               $ 2,426,733     $ 27,275     4.52 %
Loans held for sale               4,984     40     3.23 %
Securities:                        
Investment securities (taxable) (4)               22,010     107     1.96 %
Investment securities (tax-exempt) (3) (4)               657,568     8,636     5.28 %
Mortgage-backed and related securities (4)               1,450,868     9,366     2.60 %
Total securities               2,130,446     18,109     3.42 %
FHLB stock, at cost, and other investments               52,952     185     1.41 %
Interest earning deposits               57,493     61     0.43 %
Total earning assets               4,672,608     45,670     3.93 %
Cash and due from banks               47,079          
Accrued interest and other assets               377,983          
Less: Allowance for loan losses               (22,377 )        
Total assets               $ 5,075,293          
LIABILITIES AND SHAREHOLDERS' EQUITY                        
Savings deposits               $ 244,639     68     0.11 %
Time deposits               976,600     1,927     0.79 %
Interest bearing demand deposits               1,727,431     1,520     0.35 %
Total interest bearing deposits               2,948,670     3,515     0.48 %
Short-term interest bearing liabilities               385,858     906     0.94 %
Long-term interest bearing liabilities – FHLB Dallas               492,296     1,874     1.53 %
Long-term debt (5)               60,233     416     2.78 %
Total interest bearing liabilities               3,887,057     6,711     0.69 %
Noninterest bearing deposits               682,360          
Accrued expenses and other liabilities               43,360          
Total liabilities               4,612,777          
Shareholders' equity               462,516          
Total liabilities and shareholders' equity               $ 5,075,293          
Net interest income (6)                   $ 38,959      
Net interest margin on average earning assets (6)                       3.35 %
Net interest spread (6)                       3.24 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. Interest income includes taxable-equivalent adjustment of $1,082 for the three months ended June 30, 2016.  See "Non-GAAP Financial Measures."
  3. Interest income includes taxable-equivalent adjustment of $3,499 for the three months ended June 30, 2016.  See "Non-GAAP Financial Measures."
  4. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
  5. Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended June 30, 2016 reflects unamortized debt issuance costs of $78,000.
  6. See "Non-GAAP Financial Measures."

Note:  As of June 30, 2016, loans totaling $11,767 were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

    Average Balances with Average Yields and Rates
    (unaudited)
    Six Months Ended
    June 30, 2017   June 30, 2016
                          Avg Balance   Interest   Avg
Yield/Rate
  Avg Balance   Interest   Avg
Yield/Rate
ASSETS                        
Loans (1) (2)   $ 2,553,183     $ 57,321     4.53 %   $ 2,430,783     $ 56,068     4.64 %
Loans held for sale   6,466     108     3.37 %   4,283     72     3.38 %
Securities:                        
Investment securities (taxable) (4)   72,262     644     1.80 %   31,835     321     2.03 %
Investment securities (tax-exempt) (3) (4)   764,431     19,315     5.10 %   646,667     17,130     5.33 %
Mortgage-backed and related securities (4)   1,582,455     20,863     2.66 %   1,452,605     18,757     2.60 %
Total securities   2,419,148     40,822     3.40 %   2,131,107     36,208     3.42 %
FHLB stock, at cost, and other investments   66,646     597     1.81 %   54,034     402     1.50 %
Interest earning deposits   159,162     710     0.90 %   54,255     131     0.49 %
Federal funds sold   6,266     28     0.90 %            
Total earning assets   5,210,871     99,586     3.85 %   4,674,462     92,881     4.00 %
Cash and due from banks   52,237             51,406          
Accrued interest and other assets   354,283             373,998          
Less: Allowance for loan losses   (18,313 )           (21,233 )        
Total assets   $ 5,599,078             $ 5,078,633          
LIABILITIES AND SHAREHOLDERS' EQUITY                        
Savings deposits   $ 257,402     213     0.17 %   $ 240,066     133     0.11 %
Time deposits   971,095     4,950     1.03 %   945,958     3,650     0.78 %
Interest bearing demand deposits   1,661,762     4,256     0.52 %   1,722,573     2,988     0.35 %
Total interest bearing deposits   2,890,259     9,419     0.66 %   2,908,597     6,771     0.47 %
Short-term interest bearing liabilities   1,009,023     4,545     0.91 %   399,922     1,602     0.81 %
Long-term interest bearing liabilities – FHLB Dallas   255,843     2,477     1.95 %   529,561     3,913     1.49 %
Subordinated notes (5)   98,134     2,791     5.74 %            
Long-term debt (6)   60,237     961     3.22 %   60,232     821     2.74 %
Total interest bearing liabilities   4,313,496     20,193     0.94 %   3,898,312     13,107     0.68 %
Noninterest bearing deposits   711,745             677,612          
Accrued expenses and other liabilities   39,768             44,247          
Total liabilities   5,065,009             4,620,171          
Shareholders' equity   534,069             458,462          
Total liabilities and shareholders' equity   $ 5,599,078             $ 5,078,633          
Net interest income (7)       $ 79,393             $ 79,774      
Net interest margin on average earning assets (7)           3.07 %           3.43 %
Net interest spread (7)           2.91 %           3.32 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. Interest income includes taxable-equivalent adjustments of $2,085 and $2,142 for the six months ended June 30, 2017 and 2016, respectively.  See "Non-GAAP Financial Measures."
  3. Interest income includes taxable-equivalent adjustments of $6,604 and $6,638 for the six months ended June 30, 2017 and 2016, respectively.  See "Non-GAAP Financial Measures."
  4. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
  5. The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.9 million  for the six months ended June 30, 2017.
  6. Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the six months ended June 30, 2017 and 2016 reflect unamortized debt issuance costs of $74,000 and $79,000, respectively.
  7. See "Non-GAAP Financial Measures."

Note:  As of June 30, 2017 and 2016, loans totaling $3,034 and $11,767, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate. 

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